Good day, and welcome to Symantec's third quarter 2006 earnings release conference call. Today's call is being recorded At this time, I would like to turn the conference over to Ms. Helyn Corcos, Vice President of Investor Relations. Please go ahead.

Helyn Corcos, Vice President Investor Relations

Good afternoon, everyone, and thank you for joining us. With me today are John Thompson, Chairman of the Board and CEO of Symantec; and Steve Markowski, Vice President of Finance, Chief Operating Officer and Acting CFO, in addition to Gary Bloom. In a moment, I will turn the call over to John. He will discuss our financial results for the fiscal third quarter which ended December 30, 2005. He will also review Symantec's guidance for the March 2006 quarter and fiscal year 2007, as outlined in the press release. Steve will discuss highlights of our quarterly performance. This will be followed by a Q&A session. Today's call is being record and will be available for replay on Symantec's Investor Relations home page at www.symantec.com/invest. In addition to today's press release, a copy of our prepared remarks and supplemental financial information are available on the IR website.

Before we begin, I would like to remind everyone that some of the information discussed this call, including our projections regarding revenue and operating results for the coming quarter and fiscal year, contain forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in the statement. Additional information concerning these risks and uncertainties can be found in the Company's most recent periodic reports filed with the U.S. Securities & Exchange Commission. Symantec assumes no obligation to update any forward-looking statements. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles, or GAAP, Symantec reports non-GAAP financial results.

Please note that our combined non-GAAP financial results include the historical results for Symantec and VERITAS for comparative fiscal periods. In addition, our non-GAAP results include deferred revenue that has been eliminated from our GAAP results as part of the purchase accounting for the acquisition of VERITAS and adjustments related to the fair value of the assets acquired and liabilities assumed as part of the acquisition, and excludes certain non-GAAP expenses net of tax. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to most directly comparable GAAP results, which can be found in the press release and on our IR website. And now, it is my pleasure our to introduce our CEO, Mr. John Thompson.

John Thompson, Chairman and Chief Executive Officer

Thanks, Helyn. Our December quarter was driven by a record number of large transactions, robust performance and back-up e-mail archiving in high availability solutions, and a rebound in consumer demand. We generated strong bookings across all regions, leading to record non-GAAP deferred revenue of almost $2 billion, representing 16% year-over-year growth and strong sequential performance. For those of you who haven't seen the press release yet, Symantec generated one billion, two hundred and fifty three million dollars in non-GAAP revenue for the December 2005 quarter, representing growth of 5% compared to December 2004. Non-GAAP earnings per share was $0.26, excluding the write off of the in-process R&D, the amortization of acquired software and intangibles, the amortization of deferred compensation and the integration and restructuring expenses. Non-GAAP EPS grew 18% from the December 2004 period. As we look to 2006, we see an evolution in consumer demand, our customer demand occurring in our industry.

Both consumer and enterprise customers are facing a changing threat to landscape. Many of the current end market products are necessary but are not sufficient to safeguard customers from fraud, identity theft and all forms of socially engineered attacks. As customer needs change, so must our product portfolio. Product differentiation will be the key to sustainable market leadership. Our strategy of acquiring best of breed technologies will continue to be an integral part of our growth strategy. The recent acquisitions of Whole Security, Sygate, BindView and our recently anouned acquisition of IM Logic, allows us to deliver a distinctive set of capabilities to meet changing customer needs and further differentiate ourselves from point product providers.

By combining these technologies with Symantec's strong content management solutions, we are uniquely positioned to solve the next generation of security challenges. In the past, you've heard me discuss the value of having a diversified portfolio. We believe this diversification will serve us well in 2006, as we are more insulated against weakness in any particular segment than our more narrowly focused competitors. Symantec is well positioned to deliver solid results because of our broad portfolio of technologies and our diverse base of customers and partners. These attributes, coupled with our growing deferred revenue balance, are at the heart of the our drive to deliver consistently predictable results. Before I discuss highlights of the quarter, I would like to update you on some important operational iteMs. First, the Board of Directors has authorized a $1 billion share repurchase program.

Our plan is to execute a 10 B 51 program for approximately $125 million per quarter during fiscal year 2007. We expect the use the remaining 500 million opportunistically beginning this quarter. We remain committed to using our cash to drive growth and long-term shareholder value. Second, last weak we announced that Gary Bloom will be leaving the Company. With the integration of our teams well under way, this is a natural time for his transition and a well deserved break for Gary. While we will miss Gary, he and I are both confident Symantec has the talent to sustain our Company's leadership position in the industry.

The senior leaders of Symantec have an average of 16 years of industry experience, including several who have held the position of CEO. They're all well respected for their ability to lead and deliver innovative solutions that address real customer challenges. I look forward to having you meet all of them at our analyst meeting or sooner. Third, we hired a new Chief Information Officer, David Thompson. He joins us from Oracle and brings with him a significant background of accomplishments gained over 18 years of IT leadership in the high tech industry. Prior to joining Oracle, David was the CIO of PeopleSoft. And finally, I believe we're in the final round of interviews for a new CFO.

I have been quite pleased with the interest of some very qualified candidates from a broad range of industries and with exceptional experience leading multi-billion dollar global companies. I hope to announce our selection of a new CFO in the near future. It's quite exciting for me to build a new team at Symantec. Personally, this feels like the Symantec of 1999, when a few critical but important changes made a significant difference in our success and set the stage for a enormous growth and value creation for our Company. Now let me share with you the highlights of our team's December quarter. Bookings in our consumer business were the best ever, increasing 23% year-over-year or $98 million, and 45% sequentially, or $164 million. Keep in mind, these growth rates are for business that is more than three times the size of our nearest competitor.

As many of you know, we've moved to a fully ratable revenue recognition model for the consumer business. The impact of this move was approximately $40 million in the period, which is consistent with our comments on the last call. As such, while consumer bookings were strong, revenues fell 10% versus the December 2004 period. Our flagship product, Norton Internet Security, now accounts for 47% of the consumer mix, and posted growth of 16% from December 2004. The investments we've made in the fast growing electronic distribution channels are paying off. Today, products sold through electronic channels represent 65% of our consumer revenues. During the quarter, our electronic distribution channel grew 11% year-over-year. We continue to pursue new and innovative ways to reach consumers. Recently, Google announced a relationship with Symantec that further extends our reach into the consumer market.

This partnership underscores our strategy to pursue mutually profitable relationships to reach consumers around the world. As consumer confidence in doing business online continues to decline, the entire IT industry must do more. Over the next several quarters, we expect to deliver a number of exciting consumer products focused on driving increased consumer confidence. These products will address the rapidly growing threats associated with identity theft and fraud. We will also deliver a simplified back up and recovery solution aimed at protecting consumers' most treasured digital assets, such as music and digital photos. And finally, we will deliver an all-in-one integrated solution which will meet the complete security and data protection needs of consumers. Now let's shift and talk about our enterprise business. We're extremely pleased with the number of large transactions signed in the seasonally strong December quarter.

The total number of deals valued at more than 100,000 dollars reached -- I am sorry, 1,134, including a record 92 deals worth more than 1 million, versus 67 deals over one million dollars booked in the recent September quarter. In addition, almost 50% of large transactions included multiple products or services. Perhaps the most interesting element of this performance was the presence of three particular product offerings, Enterprise Vault, Managed Security Services, or Clustering, in most deals greater than $1 million. This underscores the importance customers place in high availability solutions and services that help them better manage the cost, complexity and compliance of their IT infrastructure. Going forward, I believe our managed security services business will play an even more important role in our total solution sale.

We now have more than 5,000 devices under management in over 70 countries around the world. The Enterprise Security business grew 7% year-over-year to 268 million for the December quarter. As we mentioned in our last earnings call, we continued to see increased competition in the enterprise antivirus segment of the market. Negotiations for new and renewal business, especially in the SMB segment, are consistently aggressive. With core antivirus being a must-have solution for enterprises of all sizes, product differentiation is essential for us to maintain our leadership position. We will further extend our competitive differentiation as we integrate whole securities, behavior-based security and anti-phishing technologies into our core antivirus and antispam offerings. Our acquisition of IM Logic is intended to accomplish the same thing, as customers look for a common solution across all messaging platforms. It's clear that businesses in almost every market segment today are moving beyond e-mail to real-time communications tools like instant messaging.

We believe we can monetize the opportunity. Compliance will be another area of growth for Symantec. Earlier this month, we closed the acquisition of BindView. BindView's agentless IT compliance software is highly complimentary to our agent-based policy compliance. Together, Symantec and BindView offer companies a choice of industry leading solutions that will enable them to define, control and sustain their compliance requirements. I believe we now have the most comprehensive end-to-end solution for policy and vulnerability management from a single vendor. In addition, during the quarter, we completed the acquisition of Sygate Technologies, the market leader in network access control solutions for large enterprises.

Sygate's expertise in end point protection and compliance complements Symantec's leadership in client security to offer organizations a comprehensive end point protection solution for both managed and unmanaged devices. ITC touted the transaction, saying Symantec will give customers a complete end point compliance solution while helping to reduce complexity and costs. We're also excited about the organic development of new products to meet our customers' growing IT security needs. For example, we're bringing to market the Symantec Database and Audit Security Solution. This technology addresses the growing need to protect sensitive data stored in data bases, particularly in the area of compliance, for the healthcare and financial services industries. Our Advanced Concepts Technology team drove the development and customer testing of this new solution, and we're really excited about the possibilities.

For those of you planning to attend the RSA conference, stop by our booth and see a demo of this new solution. All in all, I believe our Enterprise Security business will make solid progress as we enhance our existing protection products and extend our leadership in the compliance arena. We're very pleased with performance of the Data Protection business, which showed strong growth -- solid growth -- across the entire product portfolio. We continue to maintain our market leadership against all relevant competitors. Revenue grew 16%, reaching $331 million versus the December quarter of last year. The strong results were driven by new releases of Backup Exec and Net Backup. The upgraded version of Backup Exec now includes continuous data protection for the SMB market. The latest version of Backup is an enterprise-class backup solution featuring tight integration with network appliances storage solutions.

We're excited about the traction we've seen with the combined solution of Backup Exec and LiveState Recovery. Symantec is the only company to provide both system and data recovery capabilities. These technologies are highly complementary, and we've seen good success in cross selling these into our existing customer base. Small Business Computing Magazine ranked Symantec number one for outstanding products in the backup category. The combined Backup Exec 10d and LiveState Recovery solution received an Excellence in Technology award for being a reliable automated and feature packed solution for small businesses. Our e-mail archiving solution, Enterprise Vault, continued to excel during the quarter and once again posted very strong results.

First recently named Enterprise Vault as the market leader message archiving solution based on the strength of the offering, our overall strategy and our market leading position. As we move forward, our strategy is to further integrate Enterprise Vault with our robust mail and messaging solutions like Bright Mail and IM Logic. Symantec is uniquely positioned to provide a comprehensive product set that increases the efficiency and resiliency of messaging infrastructures. Our Storage Management segment grew 9% to $286 million compared to December 2004. Driving the strength in the quarter were Clustering and high availability products.

The continued strength in this portfolio demonstrates customers are choosing Symantec as a strategic partner to help them manage their data centers more effectively and ensure their mission-critical applications are always available. In IDC's recent assessment, Symantec again ranked number one in non-array based storage management and number one in the file system category. In addition, Gardner positioned our command central storage solution in the leadership quadrant for storage resource management for the first time. During the quarter, we expanded our storage management support for Solaris 10 on x86 and Windows Sequel server. In addition, both IBM and HP began shipping Storage Foundation on their Unix platforms. Looking forward, we're gearing up for a major launch of our Storage and Server management products. The launch of Foundation 5-0 builds on our leadership position.

The solution will allow IT organizations to standardize on a single layer of infrastructure software that truly delivers on key IT priorities of driving down costs, improving service level and simplifying IT management. Now I will turn it over to Steve, who will provide a little more detail around our December quarter financial results.

Thanks, John. And good afternoon, everyone. GAAP revenue for our December 2005 quarter was $1.149 billion, and non-GAAP revenue was 1.253 billion. Non-GAAP revenue includes $104 million of deferred revenue that has been excluded from our GAAP results due to the effect of purchase accounting related to the acquisition of VERITAS. On a non-GAAP basis, revenue grew 5% over the December 2004 quarter's non-GAAP revenue of $1.192 billion. It should be noted that the weakness in foreign currencies lowered non-GAAP revenue by almost 34 million in the December 2005 quarter compared to December 2004, and lowered non-GAAP revenue by about 15 million compared to December 2005.

The December quarter's fully diluted GAAP earnings per share was $0.08, which includes $166 million of expenses related to the amortization of acquired software and intangibles, the amortization of deferred compensation and integration and restructuring expenses. Non-GAAP fully diluted earnings per share for the quarter was $0.26, up 18% as compared to our non-GAAP earnings per share of $0.22 last December. Our non-GAAP earnings per share excludes the write off of in-process research and development, the amortization of acquired software and intangibles, the amortization of deferred compensation and integration and restructuring expenses. International non-GAAP revenue was 620 million, growing 8% versus the year ago period, and represented 49% of total non-GAAP revenue.

EMEA and Asia Pacific, which includes Japan, grew 8% and 11%, respectively. U.S. revenue was 63 million, and grew 2% -- excuse me, 633 million. Non-GAAP gross margin was 85.4% for the December 2005 quarter compared to 84.7% for the year ago period. The improved margin in December of 2005 quarter was due to consumer product costs being deferred in conjunction with our move to a ratable model. Non-GAAP operating expenses of 680 million were 54% of revenue for the December 2005 quarter, versus operating expenses of $630 million or 53% of revenue in the December 2004 quarter. The most notable cost continues to be head count. Head count at the end of December was 14,980. GAAP net income was 91 million for the December 2005 quarter, and non-GAAP net income was $282 million. This was 5% higher than the non-GAAP net income of 269 million for the December 2004 quarter. Symantec exited December with a strong balance sheet.

Cash and short term investments were 2.8 billion at the end of December. It should be noted we repurchased approximately 80 million shares valued at about 1.65 billion during the quarter. Our net accounts receivable balance at the end of December of 2005 reached a record 697 million. Days sales outstanding, or DSO, was 51 days, in line with normal seasonal trends for the combined business. Over the last two years, the DSO for the combined Company has ranged from 34 to 52 days, and we would expect our DSO to be in a similar range going forward. Cash flow from operating activities during the quarter is expected to be right around 510 million. We expect cash flow from operating activities for the March 2006 quarter to be higher than the December period, given the seasonally strong collections period.

We expect cash flow from operating activities for fiscal 2006 to be in the range of 1.6 to $1.7 billion. GAAP deferred revenue at the end of the December 2005 quarter was $1.869 billion. As John mentioned, non-GAAP deferred revenue at the end of the December 2005 quarter reached a record 1.987 billion, including $118 million of VERITAs deferred revenue that was excluded as part of the purchase acting for the merger. Non-GAAP deferred revenue grew 275 million, or 16%, compared to the non-GAAP combined deferred revenue for the December 2004 quarter. On a non-GAAP basis, Enterprise products represented almost 65% of deferred revenue, with Consumer Products accounting for about 35%. We expect 54%, or approximately 680 million on the March quarter revenue, to come from the balance sheet. Now, I would like the hand the call back to John.

John Thompson, Chairman and Chief Executive Officer

Thanks, Steve. I would like to spend a moment discussing our expectations for the current March 2006 quarter and for fiscal year 2007. For the March quarter, our guidance is as follows: GAAP revenues estimated between 1.19 billion and 1.22 billion, excluding about 60 million in deferred revenue from the VERITAS acquisition. Non-GAAP revenue for the March '06 quarter is estimated between 1.25 billion and 1.28 billion, including about 60 million in deferred revenue from the VERITAS transaction. GAAP EPS at the mid-point of the GAAP revenue guidance is forecasted at $0.10. Non-GAAP earnings per share is forecasted to be $0.25, at the mid-point of the non-GAAP revenue guidance for the March '06 quarter.

Non-GAAP EPS excludes expenses primarily related to the amortization of acquisition related intangibles and deferred compensation of approximately $155 million. For fiscal year '06, our guidance is as follows: GAAP revenues estimated between 4 billion, 90 million dollars and 4 billion, 120 million dollars, excluding $559 million of VERITAS March '05 revenue and about 300 million in deferred revenue from the VERITAS acquisition. Non-GAAP revenue for the fiscal year '06 is estimated between 4.95 billion and 4.98 billion, including 559 million of VERITAS' March 2005 revenue and about 300 million in deferred revenue from the VERITAS transaction. GAAP EPS at the mid-point of the GAAP revenue guidance is forecasted at $0.24. Non-GAAP earnings per share for FY '06 is forecasted at $0.99 at the mid-point of the non-GAAP revenue guidance.

Non-GAAP EPS excludes $980 million associated with the write-off of in-process R&D and expenses related to the amortization of acquisition related intangibles, deferred compensation and integration and restructuring costs. As we look towards 2007, we expect to expend our leadership in key enterprise segments by investing in new technologies and leveraging the talent pool we have in our global research and development organization. Our goal in the consumer business is to maintain our leadership position in core technology areas, while we shift the focus to the next generation security threats of identity theft, online fraud, and digital asset recovery. We expect Microsoft to enter the security markets, certainly this year.

As such, we plan to increase our investments in consumer marketing and channel related programs ahead of their market entry to fortify our leadership position. Our preliminary guidance for fiscal year '07 is as follows: GAAP revenue is estimated in the range of 5.35 to 5.55 billion, excluding about 55 million in deferred revenue from the VERITAS transaction. Non-GAAP revenue is estimated to grow at approximately 10% to 5.4 billion to 5.6 billion, including about 55 million in deferred revenue from the VERITAS transaction. Consistent with normal seasonality, we expect approximately 47% of total revenue to be generated during the first half of fiscal year '07. In addition, we would expect the June quarter non-GAAP revenue to be down slightly versus the March quarter. We expect operating expenses at the mid-point of the non-GAAP revenue range of $3 billion. This assumes our expenses will be slightly higher than historical trends during the first half of fiscal year '07.

We expect operating margins at the mid-point of the non-GAAP revenue guidance to be approximately 30.5%. GAAP EPS at the mid-point of the GAAP revenue guidance is forecasted $0.59. Non-GAAP earnings per share is estimated to grow about 15% to $1.14 at the mid-point of the non-GAAP revenue guidance for the fiscal year. Non-GAAP EPS excludes about $750 million of expense primarily related to the amortization of acquisition related intangibles and stock based compensation. This EPS forecast reflects normal seasonality, where approximately 42% of total EPS is generated during the first half of fiscal year '07. In addition, we would expect the June quarter on non-GAAP EPS to be down moderately versus the March quarter. We expect fully diluted CSEs of approximately 1.07 billion shares. This assumes we will be executing on announced repurchase program throughout fiscal year '07.

Deferred revenue is expected to be in the range of 2.3 to $2.5 billion. At the mid-point of the range, deferred revenue will grow approximately 10% versus fiscal year '06. Cash flow from operating activities is expected to be in the range of 1.7 to $1.9 billion. We expect cash flow from operating activities to generate approximately 10% growth compared to fiscal year '06. Finally, our view of fiscal year '07 growth by business segments, including maintenance and license revenue, is as follows: We expect Enterprise Security to grow in the low to mid-teens range. We expect the Consumer, Storage Management and Professional Services segments to grow in the low double digits range. And finally, we expect Data Protection to grow in the mid-single digit range.

As much of the merger related activity will be behind us, we expect to see our team continue to focus on market share gains in the areas where we are making significant investments for long-term growth. I am quite pleased with the hand that we have to play in a consolidating software industry. With that, I will turn it back to Helyn and we'll see if we can take some questions.

Helyn Corcos, Vice President Investor Relations

Thanks, John. Operator, will you please begin polling for questions?

Questions-and-Answer Session

Operator

Operator Instructions

Helyn Corcos, Vice President Investor Relations

While we're polling for questions, I'd like to announce the Symantec plans to attend the following upcoming conferences: The Goldman Sachs conference on February 28th, and the Deutsche Bank conference on March 14th. In addition, Symantec will be hosting an Analyst Meeting on May 31st in the Bay area. This event is invitation only, and registration will be required. A live webcast and replay of the event will be available on the Investor Relations home page. For a complete list of investor related events, please visit our Events Calendar on the Investor Relations website. Operator, we're ready for the first question.

Operator

We will have our first question from Peter Kuper, Morgan Stanley.

Q - Peter Kuper

Thanks very much. John, at the risk of living up to my reputation with you, you said a couple things that stood out to me. You said increased competition and varied aggressive renewals on antivirus -- Enterprise Security this quarter, not particularly that strong. Yet the guidance at 10% is -- you know, I think -- is that the middle case here or is that kind of your worst case scenario? Because before last quarter, you were worried you about -- you know, that you would not lose on price, so clearly you're not going to lose share. If we're seeing pressure on the Enterprise side and Microsoft entering, is this 10% actually a solid number, or should we look for a range around that number?

A - John Thompson

That's our best judge right now, which is, I think I said, Peter, low to mid-teens. And that's based upon the fact that we now have two data points of what's going on in the enterprise antivirus market. However, if you look at the total Enterprise Security segment, it is our expectation that we will see obviously some benefit from weaker compares; but the same token, we've got a much, much stronger portfolio to take into the marketplace in the '07 fiscal year than we had in the '06 fiscal year with BindView, Sygate, Whole Security and a range of other capabilities that should bolster our performance in that segment of the market. I am not really sure what reputation you were referring to, but I would assume you mean positive.

Q - Peter Kuper

As always, John, a pleasure.

Helyn Corcos, Vice President Investor Relations

Operator, we'll take the next question.

Operator

We'll have our next question from Phil Winslow, Credit Suisse.

Q - Phil Winslow

Just one quick question on the storage portions of your business, obviously strong, you know, December quarter here like you typically expect out of VERITAS. When you look at March, just curious what your expectations are there on the storage business, typically they roll off in March. Do you expect any changes there, just given the conversation structure difference with the VERITAS sales force now being part of Symantec.

A - John Thompson

Well, clearly, we had a seasonally strong December quarter in the storage business for our Company, and I think some of that is driven obviously by year in spending by large corporate users. In addition to that, we're in the early stages of a new product cycle for the backup products, both Net Backup and Backup Exec, and I think there is the opportunity for continued momentum in that business as we round out the fiscal year, as many of our sales teams look toward the opportunity to hit accelerators or at least finish up at 100% of their plan. So I think the storage management part of our business is performing as well as we ever could have expected. I am quite pleased with it.

Q - Phil Winslow

And just one quick clarification on your deferred revenue guidance for fiscal '07. Is that GAAP or non-GAAP, and what would you expect for actually the Q4 '06?

A - John Thompson

It's non-GAAP for fiscal '07. We don't have a quarterly number for the March quarter. We did give you a range for what the full year would be, which would be -- I think we did. I think we did.

Helyn Corcos, Vice President Investor Relations

No, we have not.

A - John Thompson

Okay, all right. So we didn't. What was it, the 1-6 number? Anyway, that's it.

Operator

We'll have your next question from Chris Hovis with Morgan, Keegan. Mr. Hovis, your line is open, please go ahead.

Q - Chris Hovis

Hey, John.

A - John Thompson

Hey, how are you, Chris?

Q - Chris Hovis

Good, how are you doing?

A - John Thompson

Awesome.

Q - Chris Hovis

All right. I have I question for you and just sort of thinking about some of the trends that we were seeing and hearing with regards to the fourth quarter and the looming competitive threat of Microsoft. It seems like to me, and I wanted to get your sense of this, that the AV vendors -- and particularly some of your competitors -- may have created a lot of undue pricing pressure in anticipation of Microsoft being a threat. But from what we're hearing with regards to enterprise customers' plans is that Microsoft's Vapor Wear might be worse for you than their actual introduction of the product, because of the dynamics it created around pricing. Could you kind of talk through that and sort of what you're expecting when Microsoft does introduce a consumer and enterprise product in a little bit more detail?

A - John Thompson

Well, clearly, it's been our view for a long time that the consumer antivirus market is under penetrated. The numbers from us or Microsoft or others in the industry range from penetration rates in the high 30s to numbers in the high 50s or low 60s. Regardless, if you split the difference, I'd say it's about half the market needs to avail themselves of some form of simple antivirus. That being said, it's our belief that given the new threats that have emerged or are evolving, that antivirus and firewall alone are not sufficient to deal with identity theft, online fraud, and a range of other attacks that we've seen over the portion of the last 6 to 12 months. And so it is our belief that we have to extend our lead by focusing more on the new threats as opposed to the old problem that we perceive Microsoft is focused on. They're solving yesterday's problems with yesterday's technology.

Now, that being said, we can't be unmindful of the aggressiveness that Microsoft can muster, the amount of money they can throw at a particular problem, and hence it is our belief that we have to invest in '07, calendar year '06, to really, really drive home our position of leadership in the industry. We're not going to be back on our heels here. We will be up on our toes, duking it out with Microsoft and anyone else in the consumer space. I think it's a bit premature for people to compete in that segment on price; and if in fact people are doing that in anticipation of Microsoft's entry, I think that's a bit fool hardy. But far be it for me to tell someone else how to run their company.

Q - Chris Hovis

I guess the follow up to that is, do you expect that to potentially alleviate as '06 unfolds and maybe some of the pricing pressure in the enterprise market.

A - John Thompson

You're breaking up. I'm sorry?

Q - Chris Hovis

With regards to the enterprise market, do you anticipate perhaps some of that pricing pressure letting up or an ability to your part to charge a premium price for some additional components on the desktop?

A - John Thompson

Well, it's our belief that some of the added capabilities that we now have for our portfolio will provide differentiation for us, and hence we should be able to hold price at a minimum, if not modestly raise price. That being said, we think that some of the additional functions like the Sygate technologies should be a net add and hence not have to be given away to whole price at the current levels. And so it's my belief that there is upside for us on a price per user node basis, if you will, as we bundle these capabilities together to deliver them into the marketplace.

Operator

We'll have our next question from Sarah Friar, Goldman Sachs.

Q - Sarah Friar

Good afternoon, everyone. Two questions. First, John, could you give us an update on the sales integration road map? I know Gary was involved there, but maybe now as he starts to move away from the Company, who is taking over and who is kind of running bringing together the sales force and bringing together the channel strategy and so on?

A - John Thompson

As you may recall, Sara, when John Schwartz left us, Gary took on the role to lead the business units, and we asked Tom Kendra to take on the responsibility not just for our sales team but for our services team as well, so he essentially has had now for the last four months or so the entire field operation reporting to him. And so he is on point and has been since we brought the two companies together to manage the sales integration process for Symantec. We are well down the path of the planning work each of the regional leaders -- hence, the EMEA leader, the America's leader and our APJ leader are working toward a relatively common model for how we want to manage the combination of relationships with large enterprise buyers, coverage of our channel partners and the consumer opportunity, and how those are complimented by product and technical specialists to help at the point of the sale, if you will, either for demand generation or transaction closure. While the model will be a change for some individuals, it won't be a change for either company, because both companies operated with a relationship manager product specialist model prior to the integration of the two companies. What we get to do here now is unstack, if you will, in some instances where we have multiple people covering a single account. And by doing so, we think we'll get better coverage in the '07 fiscal year; and quite frankly, we hope better penetration as well.

Q - Sarah Friar

Got it. And just a quick follow up more on the financial side. You made a comment I think when we last saw each other about linked transactions pushing out some of the revenue recognition on the VERITAS side. I just wondered -- you gave a comment on that, but maybe a broader comment on revenue recognition -- are you seeing more push to ratable model across the board and how does that impact '07?

A - John Thompson

The linked transactions actually for the quarter were consistent with our view of what might happen. So nothing abnormal cured during the quarter that would have created more ratable revenue recognition. We have also not seen a strong push by customers to combine things that might force that in that way. Time will only tell whether or not that is a sustainable trend, but that's at least what we've seen through the first two quarters.

Operator

We'll have our next question from Ed Maguire, Merrill Lynch.

Q - Ed Maguire

Yes. Good afternoon. John, looking at the increase in the number of large deals, with you comment whether there was a -- I guess predominance of storage or security leading large combined deals, and where in particular -- you did mention a couple of products -- but where you might be seeing trends leading in the future?

A - John Thompson

Well, I think, as I mentioned in my comments, there were three products that were pretty pervasive in deals above a million dollars, and that was Enterprise Vault, our Clustering products, and our MSS services. And what that suggests to us is that this notion of having a fully diversified portfolio that really does focus on this notion of cost complexity and compliance resonates with customers when they open up their wallets to make very, very large purchases. Now, as I look at the transactions -- and Ed, don't hold me to the number -- but I want to say it's about even in terms of deals above $100,000 between VERITAS and Symantec. It could be plus or minus five points on one side or the other, but it was fairly consistent pull on the reigns. Admittedly, any of the larger deals were driven by either Backup Exec, Net Backup or our Clustering and Foundation Suite products.

Q - Ed Maguire

Okay, and just a follow up on the concerns around pricing in antivirus. Are you seeing a tendency toward longer deals, either on the enterprise and on the consumer? You know, potentially putting unit pricing pressure on the sector?

A - John Thompson

Quite the contrary. We're seeing in some instances in the enterprise space where people want shorter deals -- rather than two or three years, they want one year. I think that's a desire to preserve their flexibility as things occur in the marketplace. The reverse is true in the consumer space, where we -- as well as some others -- have started to introduce multi-year subscriptions. So for some of our products through some channels, you can acquire a multi-year subscription, which we think locks down a customer, obviously, as we deliver them content and functional updates throughout the period.

Q - Ed Maguire

Thank you.

Operator

We'll have our next question from Alan Weinfeld, Kaufman Brothers.

Q - Alan Weinfeld

Have you guys talked about the consumer product and some of the ISP relationships? And any talk of how the pricing has been going, either up or down? I know you are mostly international and see different people.

A - John Thompson

I think if you were to look at total subscribers between us and the other relevant players worldwide, we are about even with McAfee in AV. The strongest players in anti-spyware would tend to have CA, with a larger share followed by some others. We are, I think, in third or fourth place globally in the spyware market. The issue for us is to make sure that as we book transactions at this point in time with consumers, that we book them with an eye toward managing both revenue growth and profitability, that as we work relationships with channel partners, either ISPs or others, that we have that same idea in mind, that we don't want to be the reason that the pricing umbrella of the industry collapses; we'd rather have some others -- I won't give them other names -- but others be the reason for that collapse. That's why the deal that we struck with Google recently was so important, because it not only gave us the opportunity to penetrate or reach many, many potential new consumers, but we were able to do that in a way that preserved the price in margin umbrella in the industry. We think it's fool hardy for competitors -- end market competitors -- to reduce prices prior to the entry of Microsoft.

Q - Alan Weinfeld

Should we look for a similar type of revenue into March, because it was sort of different in December than what some people we're looking for?

A - John Thompson

Well, deferred revenue for the consumer business was very, very strong. Quite frankly, we're pleased with the performance -- the rebound, if you will, of the consumer business in the December quarter. I am not sure what you're looking for. But we feel pretty good about the results we booked.

Operator

We'll have our next question from Tom Berquist, Citigroup.

Q - Tom Berquist

Thank you. John, there has been obviously a number of changes in senior management over time, and you're close it sounds like to the CFO. Are you going to put anybody back into the operation, particularly on the enterprise side at the senior level, or do you think you can get it done with who you have internally?

A - John Thompson

I am quite pleased with the guys we have specially. We have a very, very strong line team under Gary; and I think, quite frankly, Gary's decision, while certainly a personal move and he will be missed, it gives a couple of guys a chance to step up. It gives them a seat at the table, it gives our Board a chance to look at them more closely, it gives them an opportunity to show just what they're capable of doing; and I am convinced that they'll step up and do a terrific job.

Q - Tom Berquist

Got it. And if I could just have one other short question. Looking at the EPS guidance for fiscal '07, I'm just curious. You mentioned -- I think I heard you mention something about costs or increasing costs. Is there any granularity in terms of where you're expecting to spend over the next year? Do you think it will be heavier weighted towards sales and marketing, for example, or R&D, and how are you looking at that?

A - John Thompson

Yes, we think there is an incremental spend required in marketing, principally around the consumer business. We think we have to make sure that as we run our enterprise sales force we keep at capacity in order to deliver the revenue forecast or plan that we're booking for ourselves, and we think that there are some modestly incremental opportunities for spending in the R&D organizations as we look to prepare ourselves for cost reduction s in that arena over time.

Operator

We'll have our next question from Todd Raker, Deutsche Bank.

Q - Todd Raker

Hey guys, good afternoon.

A - John Thompson

Hey, Todd.

Q - Todd Raker

Just digging into the consumer performance a little bit, I believe you said consumer bookings were up 23% year-over-year; but within that, the ESD side only grew 11% year-over-year, which looks like it's a little bit of a deceleration. Can you just comment in terms of what you're seeing electrically and how much of the 23% growth was just restocking in the retail channel? I believe your inventory level in the channel off the delayed shipment in September was pretty low.

A - John Thompson

Well, first off, you can't make the link necessarily, Todd, between revenue and bookings, because much all the accounting hocus pocus that goes on between those two. But the reality is that there was an enormous lift, if you will, in product sold into and through the channel. Hence, that's what's reflected in the deterred revenue build. We are on a fully ratable sell through model in our consumer business. And so what you saw I believe was true demand reflected in the December quarter.

Q - Todd Raker

Okay. And then second question, and this may be in the press release. I apologize if it is. But when you gave the GAAP guidance for fiscal '07, your GAAP EPS I assume or I believe has FAS 123 charges plus acquisition charges. Can you guys quantity the FAS 123 portion for us?

A - John Thompson

I'm going to defer to Steve there. Steve, can you comment?

A - Steve Markowski

About 15% off of the non-GAAP net income.

Q - Todd Raker

Should be FAS 123. Great.

A - Steve Markowski

Correct.

Q - Todd Raker

Great. Thanks, guy's.

Operator

We'll have our next question from Chris Russ, Wachovia Securities.

Q - Chris Russ

Good afternoon. Again, on the consumer segment, down 10% but you said the bookings are up 23%. When would we see a year-over-year increase in the recognized revenue for consumer? When should that start to occur, given the change in the ratable revenue recognition?

A - John Thompson

Well, it takes a year to move the model change through the system. We made the change last quarter, and so you should expect to see apples to apples compares in the September quarter of next year -- of this year.

Q - Chris Russ

Okay. And then the traditional retail channel, did you disclose what the percentage growth in bookings there was versus online -- ?

A - John Thompson

We did not. We just talked about total bookings.

Q - Chris Russ

Total bookings, okay. Was -- should we assume that the online and OEM electronic channels were significantly higher growth than the traditional retail channel? Or --

A - John Thompson

We did not disclose a number there. But what we will say and what we did say is that the electronic channels now accounts for 65% of the business in the consumer segment. It continues to grow very, very well. Electronic channels -- all electronic channels grew at 11% in revenue compared to what the base of the consumer business performance was.

Operator

We'll have our next question from Adam Holt, JP Morgan.

Q - Adam Holt

Good afternoon. A question about the fourth quarter guidance. It looks like it implies a flat to modestly down year on year growth rate on a pro forma basis. You talked a lot about some of the changes in revenue recognition and also deferrals in particular on the VERITAS side. I was wondering if it is possible to quantify what the impact of some of those changes might be on the fourth quarter, and also what your expectations would be on a segment by segment basis from revenue?

A - John Thompson

We don't give segment by segment forecasts for a given quarter, because there is much variability that occurs there. We think the ratable model impact in the March quarter is around 18 to $20 million. That's a little lighter than we might have said in the past, but we think that's where it is at this point in time. It could be higher than that depending upon how over value volumes flow.

Q - Adam Holt

And if I could, just a follow up on the consumer business, as you look into fiscal '07 with the upcoming entrance of Microsoft, would you still expect to be able to grow your consumer subscribers?

A - John Thompson

We are focused on the idea that if you can solve the next generation security problem that there are current users of competitive antivirus or personal firewall products who may want to complement what they have with our protection solutions around anti-fraud, piracy, phishing and a range of things, and so we are not in a harvest mode in the consumer business. We're in the mode of looking to go grow the number of subscribers or number of users that we have, and do that with a more diversified portfolio than you see from us today.

Q - Adam Holt

Terrific, thank you.

Operator

We'll have our next question from Heather Bellini, UBS.

Q - Heather Bellini

Hi, John, I just had a follow up on your consumer security guidance. I couldn't tell if you were lumping in consumer security with storage management and expecting those collectively to grow 10%, or whether you were guiding for those each individually to grow greater than 10%. Thank you.

Great, thanks. You responded -- I just wanted a clarification on your response to one of the other questions about whether or not you were seeing longer term deals on a consumer; I think you said that you were in the consumer.

A - John Thompson

We are. What we have in the marketplace is a multi-year subscription capability for consumers. It's available in most channels but not all channels.

Q - Michael Turits

So my question is how much of it affected just that lengthening of the term of deals being signed on consumer? How much of that is a contribution to bookings?

A - John Thompson

I really don't know, but it was only in the quarter for a small period of time, so my suspected is it's going to be modest.

Q - Michael Turits

Okay. And if I could have a follow up, you're looking for a good growth rate in consumer. Whatever the cash flow contribution of consumer is to overall cash flow, do you expect that percentage contribution should stay pretty much about the same going forward?

A - John Thompson

It would be hard to forecast, but I don't see any reason why it would change substantially from historical performance as you link, you know, revenue growth and the margins structure of the consumer business to our go forward strategy.

Operator

We'll have our next question from Israel Hernandez, Lehman Brothers.

Q - Israel Hernandez

Good afternoon, John. With respect to the Enterprise Security business, you indicated that pricing is certainly gotten much more competitive over the last couple quarters. Is that primarily just Enterprise and SMB antivirus or is that extending into other categories within Enterprise Security?

A - John Thompson

It's mostly AV, because that's really a large portion of other Enterprise Security business, and so it is predominantly AV. And it tends to be at both new and renewal time, particularly in the SMB segment. What's interesting to us is the world must have been blind last quarter, that is the September quarter, because when we raised this issue no one else saw it; but now everyone seems to be seeing it, so they either had their head in the sand or they weren't telling the truth about what was really going on in the marketplace.

Q - Israel Hernandez

Great. Thank you.

Operator

We'll have our next question from Kevin Buttigieg, A.G. Edwards.

Q - Kevin Buttigieg

Thank you. A question back to the consumer business and your discretion of the next generation products there. Do you anticipate that they will be components of Norton Internet Security or would they be separately packaged in therefore separately priced products?

A - John Thompson

They will be separately packaged and priced products in one or two instances, and then there is a plan for a new suite; and whether or not that new suite will displace Norton Internet Security or complement it has not been decided as of yet.

Q - Kevin Buttigieg

Okay, but they should be incremental revenue generating products and then part of your consumer forecast for fiscal year '07?

Thank you. Can you maybe speak to the product roadmap over the next twelve months? You know, sort of update on the initial one, given the unified VERITAS Symantec platform?

A - John Thompson

Well, we are pretty much on track with what we promised from the initial outlay of our road map for the VERITAS/Semantec merger. What we said was that the two teams would deliver a stream of innovation around the base of products that were already there, and you've seen new releases for both Net Backup and Backup Exec. The foundation family of products will get a refresh in the summertime frame of this year. The Enterprise antivirus products will get a refresh this year. We will see integration occur both at the channel level and bundles like we've done with LiveState Recovery and Backup Exec, and you'll see later on integration at the product level as we look to move those things closer together.

The acquisition of IM Logic adds a new point of differentiation for us in the mail and messaging market, and we think the combination of our Bright Mail technologies, the IM Logic capabilities and Enterprise Vault really does put us in a pretty strong position vis-a-vis anyone else in the industry. We think there are some opportunities, quite frankly, in the Windows server space for us to do a better job of managing that environment than incumbents and we'll keep working at that. But I think the team has delivered pretty consistently against the initial roadmap that we outlined. The question now is, twelve months from now, eighteen months from now, what are the new gizmos or whizbangs that are likely to come from this. I think one of the really, really exciting products that has surfaced out of engineering labs is this Database Security Solution. It really does take some of the security technologies and puts them much, much closer to the data; and quite frankly, wrong our knowledge and insight would have been as strong there, not for the addition of the VERITAS capabilities and engineering team into our company. So I'm quite pleased with the progress we're making on the roadmap.

Q - Daniel Ives

You know, just a follow up question. I mean, John, you've been in the securities space a long time, probably longer than anyone else out there; and maybe you could just kind of -- in regards to Microsoft, I mean, do you think this is going to be more bark than the bite in regards to the actual strategy and reverse to pricing pressure and everything that's going right now? I mean, what's your sense in regards to using your years in the securities space, how you view Microsoft entering security?

A - John Thompson

I don't think there is any question about whether or not they are going to enter. And I think we will create a certain amount of noise in the marketplace. I think it is highly unlikely that a lot of existing users are going to trust Microsoft to deliver the level of security that they need for their infrastructure, be it a device or the network components that they have. But if Microsoft is true to form, over time, they will certainly win some share of the marketplace. That's why I think we have to invest in aggressive programs out ahead of their introduction or their launch into the marketplace to lock down our customers and capture new users where they are focused on the issues of identity theft, fraud and all of the new socially engineered attacks that are much more prevalent today than a worm or a virus. It's our belief that we have great capabilities and points of distinction between ourselves and Microsoft, and we're prepared for the battle. I have been in this industry for 35 years. I am looking forward to whipping on them again.

Operator

And that's all the time we have for questions and answers today. I will turn the conference back over to Mr. John Thompson for any additional or closing remarks.

John Thompson, Chairman and Chief Executive Officer

Well, I think what our results for the December quarter reflect is certainly strength in the enterprise segment of our business, a rebound in our consumer business and the focus and resolve that our team has to get the integration of our two companies behind us so we can stay focused on winning and gaining share in the marketplace. I look forward to a great March quarter and a terrific FY '07. Thanks so much.

Operator

That does conclude Symantec's third quarter 2006 earnings conference call. You may disconnect at this time. We do appreciate your participation.

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